Buy Reliance Industries, target price Rs 2900: JM Financial

JM Financial has buy call on Reliance Industries with a target price of Rs 2900. The current market price of Reliance Industries is Rs 2212.5.

Reliance Industries Ltd., incorporated in the year 1973, is a Large Cap company (having a market cap of Rs 1501103.43 Crore) operating in Diversified sector.

Reliance Industries Ltd. key Products/Revenue Segments include Petrochemicals, Oil & Gas, Income From Financial Services, Other Services, Others and Income from Retailing for the year ending 31-Mar-2022.



Financials
For the quarter ended 31-12-2022, the company reported a Consolidated Total Income of Rs 223739.00 Crore, down -5.35 % from last quarter Total Income of Rs 236377.00 Crore and up 14.55 % from last year same quarter Total Income of Rs 195318.00 Crore. Company reported net profit after tax of Rs 17740.00 Crore in latest quarter.

Investment Rationale
The brokerage has cut FY24-25 EBITDA estimate by 3-4% accounting for slightly lower ARPU given delayed tariff hike and continued weakness in petchem margin; hence, its TP has been revised to INR 2,900 (from INR 2,950) despite having rolled forward our TP to Mar’24. Though continued high capex is a key near-term concern, we reiterate our high-conviction BUY given RIL’s industry leading capabilities which is likely to drive robust 13-15% EPS CAGR over next 3- 5 years — A Giant Digital Leap. We expect Jio’s ARPU to rise at 10% CAGR over FY23-28 with ARPU being on a structural uptrend given the consolidated industry structure.

Further, strong growth momentum continues in the company’s Retail business as RIL is driving omni-channel capabilities across segments. Despite being contingent on global macros, RIL’s O2C business earnings are also relatively well-placed. At CMP, the stock is trading at FY24E P/E of 21.4x (3 yr avg: 23.8x) and EV/EBITDA of 11.4x (3 yr avg: 13.2x).

Key risks: a) continued high capex across businesses resulting in rising net debt with limited earnings visibility from new projects; b) weak subscriber addition and limited ARPU hike; and c) weak downstream margins due to macro concerns.


Promoter/FII Holdings
Promoters held 50.49 per cent stake in the company as of 31-Dec-2022, while FIIs owned 23.48 per cent, DIIs 15.19 per cent.